Legal teams of e-commerce companies look for a way to continue with the discounts

The guidelines restricting online marketplaces from offering discounts could also have a negative effect on the soaring valuations.Biswarup Gooptu&Payal Ganguly | ET Bureau | April 01, 2016, 07:26 IST

Legal teams at online retail companies are poring over the government’s guidelines on ecommerce marketplaces to find a way in which price discounts — a bedrock of their business model — can still be offered to customers.

On Tuesday, the government said that online marketplaces cannot directly or indirectly influence the price at which merchants on their platforms sell goods, but this has raised the hackles of many who believe that such a stipulation constitutes needless interference.

Experts said that while it may not be possible for companies to mount a challenge in court to the guidelines stifling discounts, they could seek clarity from the government about what kind of freebies are still allowed.

Radhika Aggarwal, the chief business officer at ShopClues said that the points which need clarity include the discounts which are given for using a specific bank’s card as well as coupon-generated discounts which are directed at customer acquisition through the affiliate network.

"Our legal team is working on it and will reach out to the Department of Industrial Policy and Promotion for further clarity," she said.

Snapdeal said it is still going through the "fine print", but declined to provide details. Flipkart and Amazon did not comment for this story.

The guidelines restricting the online marketplaces from offering discounts to the Indian consumer could also have a negative effect on the soaring valuations that they have been commanding over the last three years.

The rapid growth of India’s ecommerce industry has been fuelled by billions poured into the sector by deep-pocketed investors. A large chunk of this money has been used on marketing and to fund discounts in order to attract consumers.

"What we will have to wait and see is if the discounts fall, will sellers transacting on these platforms see fall in volume of sales? In any case, the industry was making a case for reducing discounts to reduce cash burn even before the FDI norms." said Ashish Basil, partner for technology at EY.

However, legal experts pointed out that the online marketplaces have little-to-no avenues to challenge the clarifications as it stands currently.

"It can’t be challenged, and no court will sit in judgement over the government’s decision. This is not an act, but a policy, that is clarificatory in nature, and courts have limited powers of judicial review," said Thomas Phillippe, associate partner at Khaitan & Co.

"There will be parleys with the government as these companies try and figure out how not be in violation," Phillippe said.

In a stance contrary to peers, Paytm, however, backed the policy clarifications.